Vijaya Bank Employees Cooperative Credit Society Vs ITO (ITAT Bangalore)
Interest on Bank Deposits Still 80P-Eligible: ITAT Allows Deduction u/s 80P(2)(a)(i) to Credit Co-op Society
Bangalore ITAT has allowed deduction u/s 80P(2)(a)(i) to Vijaya Bank Employees Cooperative Credit Society for AY 2022-23, reversing the denial of deduction on interest income of ₹13.51 lakh earned from bank deposits.
The Assessee, a members’ credit cooperative society, claimed deduction of its entire business income under section 80P(2)(a)(i). The AO & NFAC-CIT(A) denied deduction on interest from SB accounts & bank investments, treating it as “income from other sources” by relying on Totgars (SC) and Karnataka HC rulings.
The ITAT held that:
- The sole business of the Society is providing credit facilities to members.
- Interest earned on temporary parking of surplus funds is attributable to the business activity.
- The expression “attributable to” in section 80P(2)(a)(i) has wider import than “derived from”.
- The decision in Totgars (SC) is fact-specific and confined to cases where funds represented members’ liabilities.
- The issue is squarely covered in favour of the Assessee by Tumkur Merchants Souharda Credit Cooperative Ltd. (Karnataka HC) and reaffirmed by Mavilayi Service Co-operative Bank Ltd. (SC) holding section 80P to be a beneficial provision.
Accordingly, the ITAT directed the AO to allow deduction u/s 80P(2)(a)(i) on interest income of ₹13,51,970, holding that such interest forms part of business profits of a credit cooperative society. The appeal was allowed in full.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. In this case assessee filed its Return as per provision of section 139(1) on date 19/10/2022 on total returned income Nil. As per ITR, the assessee has claimed deduction u/s 80P of Rs.12,44,674/-. Subsequently, the case was selected for Scrutiny assessment under the E-assessment Scheme, 2019 on issues of Claim of deduction u/s 80P by entities that have received large amount of interest from a Banking Company , Notice u/s 143(2) of the Act, 1961 was issued to the assessee on 02/06/2023 assessee was asked to submit the details of activities performed by it and deduction u/s 80P of the Income Tax Act claimed by it during the year under consideration.
